Bona Law Files Amicus Brief on behalf of Leading Law and Economics Scholars in Ninth Circuit supporting Qualcomm in FTC v. Qualcomm Inc.
March 10, 2015
Bona Law PC attorneys Jarod Bona, Aaron Gott, Alexandra Shear, Luis Blanquez, and Luke Hasskamp filed an amicus brief on behalf of the International Center for Law & Economics (“ICLE”) and a dozen legal and economics scholars in the United States Court of Appeals for the Ninth Circuit. The brief argued that the Northern District of California’s ruling in FTC v. Qualcomm Inc. misapplied antitrust doctrine and economic theory in a problematic ruling that could significantly and perversely harm competition if allowed to stand. Bona Law’s amicus brief supported Qualcomm, a company based in San Diego, California.
In the lawsuit, the FTC alleged that Qualcomm violated the Federal Trade Commission Act regarding Qualcomm’s “no license, no chips” policy. Qualcomm holds patents over numerous processors and other standard-essential technology (“SEPs”) used in mobile devices, operating systems and cellular networks. Qualcomm licenses its technology to hundreds of product companies, including phone vendors. As alleged, pursuant to the “no license, no chips” policy, Qualcomm conditioned the sale of its modem chips on manufacturers’ willingness to license Qualcomm’s SEPs and enter exclusive chip deal agreements with Qualcomm.
Following a ten-day bench trial, the district court ruled that Qualcomm violated federal antitrust law and issued a broad injunction that forbids Qualcomm from (i) “condition[ing] the supply of modem chips on a customer’s patent license status” and (ii) “enter[ing] express or defacto exclusive dealing agreements for the supply of modem chips.” The ruling also ordered Qualcomm to “renegotiate license terms with customers in good faith under conditions free from the threat of lack of access to or discriminatory provision of modem chip supply” and “make exhaustive SEP licenses available to modem-chip suppliers on fair, reasonable, and nondiscriminatory (‘FRAND’) terms and submit, as necessary, to arbitral or judicial dispute resolution to determine such terms.” Qualcomm appealed the decision to the Ninth Circuit, which granted Qualcomm’s request to stay enforcement of the injunction pending resolution of the appeal.
With the help of Bona Law, ICLE and the group of academic scholars filed a brief in support of Qualcomm’s appeal. The brief argued that the district court’s ruling, if allowed to stand, would undermine the goals of the antitrust laws and deter companies from engaging in beneficial, procompetitive conduct—the very conduct that antitrust laws are designed to foster. The district court misapplied antitrust precedent and confused several theories of harm on the mistaken premise that high royalty rates, surcharges, reduction of rivals’ profits, and market exclusivity—on their own—violate federal antitrust laws. This was incorrect, as the United States Supreme Court has repeatedly recognized that the “mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system.” See, e.g., Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004).
The district court committed three key errors that were inconsistent with Supreme Court precedent and its underlying economic framework. First, the district court failed to require proof of anticompetitive harm allegedly resulting from Qualcomm’s conduct. Instead, the court inexplicably inferred both the harm and its cause in a circular line of reasoning, despite clear Supreme Court precedent expressly cautioning against such inferences, recognizing that they “are especially costly because they chill the very conduct the antitrust laws are designed to protect.” Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 226 (1993).
Second, the district court erroneously determined that Qualcomm had an antitrust duty to deal with its competitors. That is, the district court concluded that the antitrust laws required Qualcomm to license its SEPs to rival modem chip manufacturer. The court so ruled even though the general rule is that “ antitrust law does not prohibit a business from refusing to deal with its competitor” and only in rare and narrow circumstances will an exception be found. Indeed, even the FTC has agreed that “imposing obligations on a firm to do business with its rivals is at odds with other antitrust rules that discourage agreements among competitors that may unreasonably restrict competition.”
The flaw with the court’s reasoning was that, to find such a duty, there must be evidence that the company sacrificed a profitable course of dealing to adopt a less profitable alternative (presumably to position itself for supracompetitive returns in the future). Yet, here, the evidence before the court showed the opposite: Qualcomm’s practices led to a more profitable outcome, exactly as would be expected in a competitive market and certainly not one that would support a finding of an antitrust duty to deal.
Finally, the district court failed to perform a competitive effects analysis. As a result, there was no showing of a “substantial” foreclosure of competition. Instead, the court simply assumed that the foreclosure was substantial. More troublingly, there was no showing that any alleged foreclosure actually harmed competition. It is not enough that foreclosure may negatively impact a rival; instead, it must damage competition in the marketplace. Yet, the court allowed impact to rivals to serve as a substitute for harm to competition. This was erroneous, and, as the amicus brief made clear, “any foreclosure effect is as likely a result of vigorous competition as anticompetitive conduct”.
ICLE is a nonprofit, non-partisan global research and policy center focused on building the intellectual foundations for sensible, economically grounded policy. It promotes the use of law and economics methodologies to inform public policy and has longstanding expertise in analyzing antitrust laws and their interaction with intellectual property. ICLE routinely files amicus briefs in major litigation involving key issues of law, economics, competition, and technology.
Twelve legal and economics scholars from universities across the country also signed onto the brief. These professors have longstanding expertise in antitrust laws and economics and have engaged in substantial research on these topics. They are:
- Donald J. Boudreaux, Professor of Economics at George Mason University;
- Kenneth G. Elzinga, the Robert C. Taylor Professor of Economics at the University of Virginia;
- Janice Hauge, Professor of Economics at the University of North Texas;
- Justin (Gus) Hurwitz, Associate Professor of Law at the University of Nebraska College of Law;
- Thomas A. Lambert, the Wall Chair in Corporate Law and Governance at the University of Missouri Law School;
- John E. Lopatka, the A. Robert Noll Distinguished Professor of Law at Penn State University Law School;
- Daniel Lyons, Professor of Law at Boston College Law School;
- Geoffrey A. Manne, President and Founder, International Center for Law & Economics and Distinguished Fellow at Northwestern University Center on Law, Business & Economics;
- Alan J. Meese, the Ball Professor of Law at William & Mary Law School;
- Paul H. Rubin, the Samuel Candler Dobbs Professor of Economics Emeritus at Emory University;
- Vernon L. Smith, the George L. Argyros Endowed Chair in Finance and Economics at Chapman University School of Business and 2002 Nobel Laureate in Economics;and
- Michael Sykuta, Associate Professor of Economics at the University of Missouri Division of Applied Social Sciences